The Balassa-Samuelson Effect Reversed: New Evidence from OECD Countries
AbstractThis paper explores the robustness of the Balassa-Samuelson (BS) hypothesis. We analyze a panel of OECD countries from 1970 to 2008 and compare three different datasets on sectoral productivity, including a newly constructed database on total factor productivity. Overall, our DOLS estimation results do not support the BS hypothesis. For the last two decades, we find a very robust negative relationship between the productivity in the tradable sector and the equilibrium real exchange rate, in contrast to BS. Earlier supportive findings depend strongly on the choice of the dataset. Except for the terms of trade, the explanatory power of other variables is weak.
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Bibliographic InfoPaper provided by Faculty of Business and Economics - University of Basel in its series Working papers with number 2011/09.
Date of creation: 2011
Date of revision:
Real Exchange Rate; Balassa-Samuelson Hypothesis; Panel Data Estimation; Terms of Trade;
Find related papers by JEL classification:
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-10 (All new papers)
- NEP-CBA-2012-01-10 (Central Banking)
- NEP-INT-2012-01-10 (International Trade)
- NEP-OPM-2012-01-10 (Open Economy Macroeconomics)
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